OPEC members have their work cut out for them

Output quota likely to stand, but supply/demand factors add risk

SAN FRANCISCO (MarketWatch) — Members of the Organization of the Petroleum Exporting Countries will officially meet Wednesday to discuss their production ceiling, and, while they aren’t expected to offer any surprises, they’ll certainly have a lot to discuss.

“What if they held an OPEC meeting and nobody came?” asked Phil Flynn, senior market analyst at Price Futures Group. “Really, OPEC seems to be an afterthought by traders who used to buy and sell on their every word. It is unlikely that OPEC is in a position to do anything of significance.”

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But OPEC members will have to consider the many supply and demand factors in play for the oil markets that have been driving price volatility.

Tensions in the oil-rich Middle East, the U.S. fiscal cliff of spending cuts and tax hikes set for the start of the year, and euro-zone debt woes are big factors for the economy and oil-demand prospects.

The OPEC cartel continues to exceed its current production ceiling of 30 million barrels per day, with a Platts survey of OPEC and oil industry officials and analysts showing November output at 31.08 million barrels per day.

Against a “backdrop of myriad risks to global oil supply and demand,” OPEC’s semiannual conference “promises to be relatively uneventful,” analysts at J.P. Morgan wrote in a recent research note.

Still, there is “plenty of risk for OPEC ministers to consider and manage,” they said. “Major challenges include: U.S. fiscal troubles, slowing European growth, rising geopolitical risk in the Middle East and Asia and a possible renaissance in non-OPEC production growth.”

Quotas and more

As usual, members of the cartel will have to make an official decision on the collective production ceiling — but that’s the part of the meeting that most analysts think will be the simplest. The toughest will be finding a new secretary-general to replace the current one, who has held the post for six years.

The market doesn’t expect a quota change, said James Williams, an energy economist at WTRG Economics. “Prices are too high for a lower quota and not high enough for a larger one,” he said.

The January Brent crude oil
UK:LCOF3
contract traded on ICE Futures in London trades at above $108 a barrel, and OPEC’s basket price, which is made up of a dozen different types of crude oils, stood at $105.01 on Monday. See OPEC’s latest basket price.

Meanwhile, finding the next secretary-general for the cartel will prove to be a bit more challenging, analysts said. The secretary-general is the legally authorized representative of OPEC and chief executive of the Secretariat, which is responsible for implementation of all resolutions passed by the conference.

Abdalla el-Badri, a Libyan, has held the post since 2007 for two three-year terms. Majid al-Munif of Saudi Arabia, a former top OPEC adviser, and former oil ministers Thamir Ghadhban of Iraq and Gholam-Hossein Nozari of Iran are competing for the position.

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